Question

During the current year, East Corporation had 4 million shares of common stock outstanding. 2,200, 4% convertible bonds, each with $1,000 face value, were issued at face amount at the beginning of the year. East reported income before tax of $11 million and net income of $6.6 million for the year. Each bond is convertible into 10 shares of common stock. What is diluted EPS?

A. $0.90.
B. $0.95.
C. $0.89.
D. $0.94.

Answer 1

$1.64

Step-by-step explanation:

Diluted earning per share is calculated by adjusting all the convertible share options or securities in the outstanding share.

According to given data

Net Income for the year = $6,600,000

Outstanding shares = 4,000,000 shares

Number of shares to be converted = 2,200 x 10 share = 22,000

Outstanding shares after adjusting options = 4,00,000 + 22,000 = 4,022,000 shares

Diluted EPS = Net Income / Outstanding share after adjustment

Diluted EPS = $6,600,000 / 4,022,000 = $1.64

Note

Options are inconsistent with data given.